A NEW TAX CODE IN THE SPOTLIGHT; Gibbs Looks Not for Love But Respect for the I.R.S.

Lawrence B. Gibbs is a friendly Texan who admits he has an image problem. Now in his second year as Commissioner of the Internal Revenue Service, he is struggling to change the culture of an agency that too often, he says, is seen as the enemy of the people, somewhat slipshod, inaccurate and rude.

He would prefer that descriptions of the I.R.S. include such adjectives as polite, courteous, professional, thorough and fair, but he concedes that the process of change is a slow one.

''We are not looking for love as tax collectors,'' Mr. Gibbs says. ''But we would like the respect and confidence of the public. And we think the way to get it is by treating people promptly, professionally and courteously.''

In normal times, changing the culture of the nation's tax collection agency would be a major task in itself. But the Gibbs plan comes when the agency is also coping with sweeping changes in the nation's tax law.

Only three years ago, the service experienced perhaps the most embarrassing year in its history, when widespread computer breakdowns caused the loss of hundreds of thousands of returns, generated a flood of inaccurate warning notices and essentially created a managerial nightmare. Though the last two filing seasons ran much more smoothly, the computer disasters are still fresh in the mind of Mr. Gibbs and the agency. And given the magnitude of change, some computer problems are almost a certainty this year. Because of the 1986 tax law, the agency has had to change 25 percent of its software programs, rewrite its computer manuals and change some of its hardware.

The agency also must defend itself against critics of the accuracy of its telephone information. A recent study by the General Accounting Office found that the I.R.S. was giving incorrect answers to 39 percent of the questions asked by people seeking tax help.

While it fights these skirmishes, the agency's workload is increasing. It expects to handle three million more tax returns this year for a total of 107 million. It also expects to issue 80 million refunds and is trying its best to warn the public to file as early as possible.

But Mr. Gibbs is upbeat. ''We're ready,'' he says.

Central to the Gibbs approach in changing the culture of the I.R.S. is an economic argument. It is widely accepted that for every dollar invested by the I.R.S. in auditors and investigators the agency raises $4 of revenue - not a bad reason for increasing its army of agents. After rising by 2,500 last year they have jumped another 2,500 this year and will rise yet another 2,500 in 1989. But Mr. Gibbs also strongly believes that similar increased revenues come from investing in the more docile side of the agency - taxpayer services and assistance, educating the public on how it can comply with the tax code.

Mr. Gibbs asserts that almost annual changes in the tax law by Congress have confused the American public and have led to less compliance. ''It's not that people don't want to comply, but they don't understand the changes in the law and what are their obligations,'' he says.

And it is here he believes he can most effectively begin to change the public attitude about the agency. He recites a litany of changes that he believes will go a long way toward educating the public and subsequently increase the level of taxpayer compliance.

The I.R.S., for example, has opened 50 new offices, bolstered its training and increased the number of telephone-answering personnel and telephone lines available through its toll-free telephone system, instituted Saturday hours to answer calls from the public and sent out more than 16 million copies of a new publication, ''Explanation of the Tax Format of 1986 for Individuals.''

The agency has expanded its automated telephone-answering system, Tele-Tax, which through prerecorded messages can now handle up to 150 tax subjects. Moreover, Mr. Gibbs says that after March 15, taxpayers who have filed their returns will be able to call Tele-Tax, punch in their Social Security numbers and get information on the status of their refunds.

Amid the changes, a new word has crept into the lexicon at the I.R.S. - leniency. It is likely to be short-lived and limited in scope, but Mr. Gibbs admits that it could be counterproductive for the I.R.S. to be overly exacting with the public this year.

As such, the agency has announced that in several areas it will not impose the kinds of penalties it could under the law. For example, for filers who do not include the Social Security numbers of their dependent children over the age of 5, the $5 penalty per dependent will be waived this year, and Congress delayed the tougher withholding standards imposed by the Tax Reform Act of 1986 by one year. Moreover, Mr. Gibbs told a

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Senate subcommittee last month that the I.R.S. was considering waiving penalties on returns when the taxpayer could show he was given wrong information by I.R.S. telephone assisters.

''This kind of move shows that the heart of the I.R.S. is in the right place,'' said Frederic Corneel, a senior partner at the Boston law firm of Sullivan & Worcester. ''Gibbs means to have the I.R.S. think of itself as a service organization with taxpayers as clients rather than the enemy. But I think it's too early to say how much of a difference it will make. The complexity of the changes in the law may not lead to the kind of compliance and taxpayer satisfaction the I.R.S. hopes for.''

Mr. Gibbs is generally getting high marks from tax practitioners and members of Congress for his emphasis on greater professionalism and greater taxpayer service at the I.R.S. But some predict that in the end it will be very hard to change the institutional mentality of a bureaucracy with 102,000 civil servants.

''He has done a very good job in increasing the resources of the service side of the I.R.S.,'' said Senator David H. Pryor, Democrat of Arkansas, and chairman of the Senate Finance subcommittee on I.R.S. oversight. ''But he has to change the attitude of the collection agents out in the field, which is an entirely different world from the Washington office.''

Some tax practioners say they have yet to see the effects of Mr. Gibbs's policies.

''There's always been some very good people and some not so good people at the I.R.S.,'' said Geoffrey Harlow, a senior tax manager in the Chicago office of Deloitt, Haskins & Sells. ''I don't know that I have really sensed any change recently.''

Indeed, some tax practitioners predict that despite the Gibbs effort toward an I.R.S. version of glasnost, once again it will become the focus of taxpayer frustration.

''It's like shooting the messenger,'' said Sheldon S. Cohen, a former I.R.S. Commissioner during the Johnson Administration. ''The service is going to catch a lot of grief that should rightfully be directed at the Congress who enacted the law and the President who proposed it.'' A new kind of compliance mechanism at the I.R.S. may add to the feeling of discontent. Millions of taxpayers will be affected this year and in coming years by the ability to match by computer hundreds of millions of documents supplied by banks, brokerage firms and other third parties with individual tax returns.

Though the I.R.S. has been using document-matching for several years, its capacity has been greatly enlarged. Mr. Gibbs says that this year the I.R.S. will match almost a billion documents with returns.

Clinton Stretch, a tax partner at the accounting firm of Deloitte, Haskins & Sells, predicts that in the end this document-matching by computer will result in millions of notices sent to taxpayers.

''To the extent that this enhanced compliance machine results in a lot of corrections and a lot of penalties, you have a question of whether you are going to end up hurting tax compliance by engendering resentment in the population,'' Mr. Stretch said.

The I.R.S. contends that document-matching plays a key role in handling essentially minor compliance problems and gives its agents greater ability to concentrate on the larger cases that tend to involve high income taxpayers, small businesses and the self-employed.

This in part, I.R.S. officials say, explains the drop in the percentage of audits in recent years, from 1.3 percent of all tax returns filed in 1985, to 1.09 percent last year. This year the I.R.S. is predicting that 1.1 to 1.3 percent of all returns will be audited.

The audits as well as the computer matching programs are all part of Mr. Gibbs's theory. ''If you are paying your fair share of taxes and you think that there is an agency out there that is making everyone else pay their fair share, then you most likely feel O.K.,'' he said.

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A version of this article appears in print on March 6, 1988, on Page A3 of the National edition with the headline: A NEW TAX CODE IN THE SPOTLIGHT; Gibbs Looks Not for Love But Respect for the I.R.S. Order Reprints|Today's Paper|Subscribe